China plans could be saviour of metals industry
08:20 p.m Mar 07, 1998 Eastern
By Lynne O'Donnell
SHANGHAI, March 8 (Reuters) - China's plans to spend $750 billion on
infrastructure could be the saviour of the metals industry but traders
and analysts said they wondered where the money would come from and how
it could be spent in just three years.
''It is an incredible amount of money and I'm having difficulty thinking
that it will actually come about,'' said an analyst with a London Metal
Exchange (LME) broking firm.
''If it happens, it would certainly solve all of Asia's problems.''
Vice Premier Li Lanqing announced last month that China would invest
$750 billion in infrastructure in the next three years to stimulate
economic growth.
Premier Li Peng told the current annual session of the National People's
Congress, or parliament, China would aim for 1998 economic growth of
eight percent, down from 8.8 percent in 1997.
Chinese and Western economists said infrastructure was the key to China
's plan to reform struggling state companies by slashing the bloated
workforce and creating new jobs to avoid the social unrest that could
result from massive unemployment.
The infrastructure investment plans were seen helping Beijing spend its
way to stronger growth as domestic demand weakens and exports slow.
Spending of that magnitude would mean massive consumption of base metals
as China strove to build roads, railways, power stations,
telecommunications and housing, analysts said.
''It is going to be extremely metals-intensive,'' said William Adams of
metals broking firm Rudolf Wolff.
''The worry is that it is just so much, it is such a large amount to
grapple with and there would have to be some very interesting
consequences for metals,'' he said.
The metals industry has been facing the prospect of rising inventories
and oversupply as the problems of some Asian economies have led to
drastically slowed consumption.
China has been isolated from the Asian financial crisis largely because
its currency is not fully convertible.
But exports have shown signs of slowing as China's markets in the region
shrink and competition from countries with vastly depreciated currencies
makes Chinese goods look expensive.
Rough calculations show that level of investment breaking down to $4.8
billion a week, or $686 million a day, for three years.
The World Bank said in 1995 China would need 10 years to spend $750
billion, which represents about seven times current foreign exchange
reserves.
The possibility that foreign investment in infrastructure projects would
be eased was almost a moot point, an Australian economist said, pointing
to the more attractive investment environments elsewhere in Asia.
''There will be a dearth of foreign investment inflow over the next 18
months, or at least until people see where the (Chinese) currency is
going to settle,'' said the Sydney-based source.
Despite repeated assurances from the Chinese leadership that the yuan
will not be devalued -- spelled out again by Premier Li in his report to
parliament on Thursday -- foreigners would remain nervous about
investing in China, he said.
An industry executive in Singapore said plans to boost output of mines
and smelters pointed to China's long-touted desire for self-sufficiency.
''But it will take a long time to achieve self-sufficiency, despite the
great resources the country has, so in the meantime China will need to
come to the world market for its needs,'' he said.
-- Shanghai newsroom (8621) 6355-2001; fax 6355-5015 ^REUTERS@ |
